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Supply Chain Cost Management Praise for Supply Chain Cost Management ‘‘I have used the Anklesaria Cost Roadmap repeatedly over the last ten years with three organizations, to great effect each time. We have been able to take millions of dollars out of supply chain costs through knowing just how much there is that can be avoided, either by identifying and jointly removing those costs that are not valid for us, or through helping suppliers take down their own cost base. The AIM & DRIVE process is a great way to get a structured start, running the process in parallel with multiple suppliers.’’ —Neil A. Deverill, Executive V.P. Procurement, Anglo American plc. (formerly with Philips and Electrolux) ‘‘I have been personally involved with Anklesaria’s AIM & DRIVE process over the past several years with two large employers. The process really works . ! I have yet to find any other methodology that provides a comparable return-on-investment.’’ —Steve Kesinger, Vice President, Procurement, Nordstrom ‘‘The AIM & DRIVE process is the facilitator of change. It gives focus and direction to the cost management effort. Senior management must have an understanding of the process. They have to validate the targets and they have to make a commitment to participate. With the above in place, AIM & DRIVE is a powerful tool that turns goals and targets into real change, real bottom line impact. This is hard work, but watching a team analyze, identify, learn, and structure options for action is really ‘neat stuff.’ We looked at several tools to incorporate into our cost management effort and chose AIM & DRIVE. The approach gave us the definitions, the work pa- pers, and the methodology to build the entire cost management program for our marketing community. We didn’t want to bring in a bunch of consultants, teach them our business, give them our data and processes, have them tell us what we know already, and then leave. AIM & DRIVE allows us to build an internal knowl- edge base, points the process owners to the cost driver and promotes real, permanent change.’’ —Bob Quinn, Director of Business Operations, IBM Corp. ‘‘I cannot believe that my teams and I have been using AIM & DRIVE techniques since the very early 1990s! This is surely testimony to the value, durability, and relevance of AIM & DRIVE as a valuable way to collaboratively manage cost through the supply chain. Managing cost is always a sensitive issue with suppliers. However, the AIM & DRIVE process has continually proven its value by getting past the emo- tions and getting to real cost management solutions that benefit both parties.’’ —John Proverbs, Senior Director, Supply Chain, KLA-Tencor (formerly with IBM and Hewlett-Packard) ‘‘If you’re interested in sustainable supply chain advantage along with break- through cost reduction, read Jimmy Anklesaria’s book. AIM & DRIVE is a proven and robust process to systematically take cost out of your supply chain versus simply transferring costs elsewhere. Jimmy’s extensive experience with many premier sup- ................. 16526$ $$FM 08-08-07 09:50:39 PS PAGE i ply chain practitioners provides invaluable advice to anyone serious about supply collaboration and genuine cost removal.’’ —Joe Sandor, Hoagland-Metzler Endowed Professor of Practice in Supply Management, The Eli Broad Graduate School of Business ‘‘AIM & DRIVE is one of the main processes we have implemented at Nokia Sourcing and Procurement in the scope of Material Cost Leadership. The systematic approach of this methodology and the analysis of the key cost drivers combined with our soft skills, reflected into our ‘Passion and Trust’ values, have produced a clear advan- tage for Nokia at the system level. We have now fully deployed AIM & DRIVE at Nokia for all component solutions. AIM & DRIVE is also playing a major role in our overall cooperation and collaboration with our suppliers’ network in a very posi- tive partnership spirit which is the foundation of our strategy.’’ —Jean-Francois Baril, Senior Vice President, Sourcing and Procurement, Nokia Corporation ‘‘Anklesaria’s AIM & DRIVE process helped to open the eyes of procurement profes- sionals and generated value-added and breakthrough ideas at Deutsche Telekom, which we needed to improve the bottom line.’’ —Hans Heith, Chief Procurement Officer, Deutsche Telekom ‘‘I have led the execution of the AIM & DRIVE process in two major corporations (Texas Instruments and Motorola) for over thirteen years. This process has yielded greater cost reduction in the supply chain than any other method I have seen used. It is also one of the best processes I know of to strengthen positive relationships with suppliers and has facilitated placing my company as the ‘most favored customer’ status with our suppliers.’’ —Ernie Cook, former Chief Procurement Officer, Communications Computing Group, Motorola ‘‘The teams trained in the AIM & DRIVE process delivered impressive results. It made no difference if the supplier was domestic or foreign or what the commodity was. If there was a cost removal opportunity it was uncovered and implemented. The proc- ess helped in overcoming internal barriers to implementation of change at both the customer and supplier.’’ —Phil Keller, former Manager Procurement Process, DuPont ‘‘I have been engaged with Jimmy Anklesaria’s AIM & DRIVE process over the past fifteen years with three top employers, soon to be four. The processes are outstand- ing! There is no other process that yields significant results every time regardless of the category. Every buyer, engineer, and strategic sourcing person must have these tools, processes, and methodologies in their intellectual toolbox.’’ —Tom Piersa, Vice President, Procurement & Supply Chain Management, Allied Waste Industries (formerly with Eastman Kodak, York International, and Maytag) ‘‘I really believe in Jimmy Anklesaria’s AIM & DRIVE process and have personally seen the results at IBM and Motorola. There are few processes that deliver a greater return on investment.’’ —Theresa Metty, Chairperson, Institute of Supply Management ................. 16526$ $$FM 08-08-07 09:50:39 PS PAGE ii SUPPLY CHAIN COST MANAGEMENT ................. 16526$ $$FM 08-08-07 09:50:39 PS PAGE iii This page intentionally left blank PAGE iv SUPPLY CHAIN COST MANAGEMENT The AIM & DRIVE௡ Process for Achieving Extraordinary Results Jimmy Anklesaria American Management Association New York • Atlanta • Brussels • Chicago • Mexico City • San Francisco Shanghai • Tokyo • Toronto • Washington, D.C. ................. 16526$ $$FM 08-08-07 09:50:40 PS PAGE v Special discounts on bulk quantities of AMACOM books are available to corporations, professional associations, and other organizations. For details, contact Special Sales Department, AMACOM, a division of American Management Association, 1601 Broadway, New York, NY 10019. Tel: 212-903-8316. Fax: 212-903-8083. E-mail: [email protected] Website: www. amacombooks.org/go/specialsales To view all AMACOM titles go to: www.amacombooks.org This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. AIM & DRIVE௡ is a registered trademark, and is used with permission. Formula Based Costing௣ is trademarked by Jimmy Anklesaria and is used with permission. Library of Congress Cataloging-in-Publication Data Anklesaria, Jimmy. Supply chain cost management : the AIM & DRIVE process for achieving extraordinary results / Jimmy Anklesaria. p. cm. Includes bibliographical references and index. ISBN-13: 978–0-8144–7475–4 ISBN-10: 0–8144–7475–6 1. Industrial procurement—Cost effectiveness. 2. Industrial procurement— Cost control. 3. Business logistics—Management. I. Title. HD39.5.A55 2008 658.7Ј2—dc22 2007013645 ᭧ 2008 Jimmy Anklesaria. All rights reserved. Printed in the United States of America. This publication may not be reproduced, stored in a retrieval system, or transmitted in whole or in part, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of AMACOM, a division of American Management Association, 1601 Broadway, New York, NY 10019. Printing number 10987654321 ................. 16526$ $$FM 08-08-07 09:50:40 PS PAGE vi This book is dedicated to my wife, Jennifer, my son, Zubin, daughters, Jasmine and Avi Lynn, and To my mentor and friend, Gene Richter (1937–2003) ................. 16526$ $$FM 08-08-07 09:50:40 PS PAGE vii This page intentionally left blank PAGE viii This page intentionally left blank PAGE x Contents Foreword by Theresa Metty xi Preface by Dave Nelson xv Acknowledgments xix 1. Introduction 1 2. The AIM & DRIVE Process of Cost Management 7 3. Agreeing on the Need to Manage Costs 29 4. Identifying Critical Costs in the Supply Chain 55 5. Measuring Secondary and Tertiary Costs 79 6. Defining the Key Cost Drivers and Developing Strategic Options 101 7. Reducing, Eliminating, or Changing Activities That Cause Costs 123 8. Implementing an Action Plan 161 9. Verifying the Plan with Cost Monitors 185 10. Eternally Improving and Leveraging the Process 205 Index 225 ................. 16526$ CNTS 08-08-07 09:50:43 PS PAGE ix Foreword During my time at IBM and Motorola (1995–2005), there was one goal that drove us constantly: a substantial reduction in costs. The low-hanging fruit had been gathered, and we were still far from our targets. We needed something that would take us to the next level where our category teams could generate breakthrough ideas that would deliver a sustainable competitive advantage for the company. The answer was AIM & DRIVE. We successfully deployed it at both companies, and were able to take hundreds of millions of dollars out of supply chain costs. That alone would be reason enough for me to take the time to write this Foreword. But the magic of the AIM & DRIVE process is that while we were reducing costs, we were also improving key supplier and internal customer relationships.
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